9.75% Aadhar Housing Finance NCD Sep 2018 – Should you invest?

DHFL group company, Aadhar Housing Finance NCD Issue would open for subscription on 14th September, 2018. Aadhar Housing Finance NCD interest rates are up to 9.75%. They are offering secured NCDs. Aadhar Housing Finance NCDs are offered for 3, 5 and 10 year tenure. Should you invest in Aadhar Housing Finance NCD Sep 2018? What are the risk factors one should consider before investing in such high risk NCDs? Tata Capital Financial Services NCD and IndiaBulls Commercial Credit NCD’s would also open for subscription now. Among Tata Capital Finance NCD Vs Indiabulls Commercial Credit NCD Vs Aadhar Housing finance NCD, which is better NCD to invest?

They are a deposit taking housing finance company registered with the NHB and focused on providing affordable housing financing products for the EWS and LIG segment in India, in tier 2 to tier 4 cities and towns, to diverse customer groups with focus on salaried (both formal and informal) and self-employed (business and professional in formal and informal segments) home buyers. As on March 31, 2018, 38.92% of its portfolio falls under EWS segment, 42.92% under LIG segment and 18.16% segment under MIG. Salaried customers comprise 70.49%, 71.52% and 67.70% of its assets under management as at March 31, 2016, March 31, 2017 and March 31, 2018, respectively.

Features of Aadhar Housing Finance NCD Sep 2018

Issue start date: 14-Sep-2018

Issue end date: 28-Sep-2018

NCD’s are available in 6 series/options. It offers NCD for 3 years, 5 years and 10 year tenure.

Coupon interest rates are between 9.25% to 9.75%.

Under Series I to Series VI of NCD Holders, Retail investors would get 0.1% additional interest rate compared to other investors.

These are Secured Redeemable NCDs.

Interest payable monthly and yearly depending on the option chosen by the NCD investor.

The face value of the NCD bond is Rs 1000.

Minimum investment is for the 10 bonds. Means, you need to invest for a minimum of Rs 10,000. Beyond this you can invest in multiples of 1 bond.

These NCD bonds would be listed on BSE/NSE. Hence, these are liquid investments.

NRI’s cannot apply to this NCD subscription.

The base issue size is Rs 5,000 Crores with an option to retain over-subscription up to Rs 14,000 Crores.

The NCDs proposed to be issued will be secured by a first ranking pari passu charge on present and future receivables, current assets, long term investments, including investments in money market mutual funds and fixed deposits of the Issuer for the outstanding principal amount and interest thereon (excluding the floating charge on the specific assets as per the provisions of Section 29B of the National Housing Bank Act, from time to time). The Issuer reserves the right to sell or otherwise deal with the security as mentioned above, including creating a charge on pari passu basis thereon for its present and future financial requirements, provided that a minimum-security cover of 1 (one) time on the outstanding principal amount and interest thereon, is maintained.

When Aadhar Housing Finance NCD Sep 2018 is proposed to be listed on stock exchanges?

The NCDs are proposed to be listed on BSE and NSE. The NCDs shall be listed within 12 Working Days from the date of the Issue Closure.

How is the company doing in terms of profits and NPAs?

Its standalone profits are as below:

Year ended Mar-2016 – Rs 26.72 Crores

Year ended Mar-2017 – Rs 23.21 Crores

Year ended Mar-2018 – Rs 99.73 Crores

As at March 31, 2016, March 31, 2017 and March 31, 2018 its gross NPAs as a percentage of our loan book was 1.26%, 1.55% and 1.17%, respectively and its net NPAs as a percentage of our loan book (net of NPA provision) was 0.89%, 1.11% and 0.78%, respectively.

Aadhar Housing Finance NCD Sep 2018 – How the returns taxed?

For investors who are applying through demat account, there would not be any TDS deduction.

Income tax on interest would be based on individual tax slab. Means, irrespective of whether company deducts TDS or not, you should show the interest income on your income tax return and pay necessary income tax.

Why to invest?

1) Company has track record in providing affordable housing while maintaining a healthy asset quality. Strong growth opportunity backed by Central Government initiative of Housing for all is the key for success of this business.

2) The company is earning consistent and improving margins in the last few years. This indicates that this company has ability to consistently pay the interest rates for its creditors or NCD holders.

3) These NCDs offer attractive interest rates where you can get yield up to 9.75% per annum.

4) It issues Secured NCDs. In case of any non performance of the company and the company gets closed for some reason, NCD investors would get preference in repayment of capital along with interest. Hence it is safe to invest in such secured NCD options. However, it is only preference is given to NCD investors and no guarantee that entire amount would be paid-back in such cases.

Why not to invest in Aadhar Housing Finance NCD Sep 2018?

1) They have undertaken, and may undertake in the future, strategic alliances, which may be difficult to integrate, and may end up being unsuccessful.

2) Its business has been growing consistently in the past. Any inability to maintain its growth may have a material adverse effect on its business, results of operations and financial condition.

3) Its business is particularly vulnerable to volatility in interest rates they may experience difficulties in expanding its business into new regions and markets.

4) They may face difficulties and incur additional expenses in operating in rural and semi-urban markets, where infrastructure may be limited.

5) Its indebtedness and conditions and restrictions imposed by its financing arrangements could adversely affect its ability to conduct its business and operations.

6) They are subject to periodic inspections by the NHB. Noncompliance with the NHB’s observations made during any such inspections could adversely affect its reputation, business, financial condition, results of operations and cash flows

7) Housing finance companies in India, including us, are required to prepare financial statements under Ind-AS from April 1, 2018 onwards. Any failure to successfully adopt Ind AS may have an adverse effect on the audit process run by company and/or may lead to regulatory action and other legal consequences

8) In order to sustain its growth, they will need to maintain a minimum capital adequacy ratio statutory liquidity ratio. There is no assurance that they will be able to access the capital markets when necessary in order to maintain such a ratio.

9) As an HFC, they face the risk of default and non-payment by borrowers. Any such defaults and non-payments would result in write-offs and/or provisions in its financial statements which may have a material adverse effect on its profitability and asset quality.

10) Other Internal and external factors can be read at the risk factors of the NCD prospectus.

How to apply these Aadhar Housing Finance NCD Sep 2018?

Aadhar Housing Finance NCD Issue of September 2018 is available in only in demat form. You can apply online or through any of the broker website where you are maintaining a demat account. For more information on this you can refer prospectus.

Let's now compare among these NCDs as these have come at the same time for investment.

1) Tenure: Both Tata Capital Finance NCD and Aadhar Housing Finance NCD have come up with 3, 5 and 10 years NCDs. However Indiabulls Commercial Credit has come up with 2 years tenure too apart from 3,5 and 10 years.

2) NCDs: Tata Capital Finance has come up with both secured and unsecured NCDs. However Indiabulls commercial credit and Aadhar Housing finance has come up with only Secured NCDs.

Aadhar Housing Finance is offering Secured NCDs and offers up to 9.75% interest rates. However, its low credit rating compared to other 2 NCDs is a major negative point. Since it offers secured NCDs, there is some security to your investment. If you are willing to park your money in fixed income options, you can first go for Tata Capital Financial NCDs, 2nd is to Indiabulls commercial Credit NCDs and finally to Aadhar Housing Finance NCDs. You need to invest in these NCDs only for short to medium term of say 2 to 5 years only. Avoid investing in long term NCDs as we do not know how the company would perform in the long run and such NCD’s may turn to be high risk in the future.

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5 comments

Apart from Business uncertainty over a longer period (10 years ), it’s difficult to take a call on Interest rates for a 10 year horizon. It’s good for ppl looking for fxd income, specially retired / those approaching retirement (in the 10% tax bracket).

Can you clarify whether the 0.10% addl interest is over and above the 9.75% ??

The analysis is missing few key analytics like Gross/ Net NPA which are key to assess portfolio quality of such companies and slippages YoY. Secondly your profit numbers for Mar 2018 look off. Annual report shows me ard 99 crore profit vs your 997. Thirdly, you seem to have missed the impact of DHFL merger on the financials and showing superfluous growth from 2017 to 2018. Can you compare standalone numbers and see how the Company has grown historically?

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Suresh KP i.e. me, have written 1800+ articles on this Blog. I love doing analysis on various Best Investment Plans like mutual funds, Stocks, IPO’s, NCD Bonds, Insurance products. If you like our blog, you can share some of the good articles on your Facebook or Twitter. This would be the BIGGEST gift which you would be giving to us.